9/04/2009 @ 6:00AM

Gambling Industry Raises Stakes In Balkans

The gambling industry is growing rapidly in southeastern Europe, attracting tourists from neighboring countries, creating jobs and generating tax revenues. However, the sector is also thought to engage widely in tax evasion and appears to play a role in money laundering for organized crime.

The gambling industry in southeastern Europe has two distinct parts:

* Casinos. At the higher end of the market, casinos offer roulette wheels, as well as traditional card and dice games such as blackjack and craps. In countries where casinos are tightly regulated, few casinos operate–there is only one full casino in Serbia and one in Bosnia-Herzegovina (BiH), compared to 24 in Romania, where the market is completely unregulated. Casinos tend to attract consumers from outside the host countries.

* Gaming Houses. At the lower end of the market are vast halls filled with slot machines, as well as bingo games and lotteries. BiH has 2,000 slot parlors and lottery shops for a population of 3.9 million, while Romania has 25,000 gaming houses for a population of 22.3 million. Gaming houses target the local population rather than tourists.

Economic Jackpot? A recent report by the Organized Crime and Corruption Reporting Project–which brings together regional investigative journalists–estimates that 1.5 billion euros ($2.2 billion) a year is staked in the gambling industry in southeastern Europe. The sector may thus be expected to contribute significantly to the economy, through two main routes:

* Tax Revenues. Macedonia reports income of $2 million per year from taxes on gambling; Serbia earned 12 million euros in only the first quarter of 2009 from this source and Bulgaria 57 million euros in 2008. However, there is also widespread tax evasion. Many casinos and gaming houses have been found to keep two sets of accounts, one that records losses and is submitted to the tax authorities, and another authentic record that reveals vast profits.

* Job creation. The industry has created 1,600 jobs in Macedonia, and pays average salaries to its workers of around $650, more than twice the national average. In Bulgaria, the industry is estimated to create 80,000 jobs directly and indirectly, and pays wages around 50% higher than the national average.

Crime links. In addition to tax evasion, the gambling industry is heavily associated with organized crime. Casinos and gaming houses often serve as money laundering facilities for criminal groups, many of which are operating in the Balkans, engaging in trafficking drugs or people.

The gambling industry is also associated with violence. This sometimes relates to turf battles between casino owners, who are often high-profile criminals involved in a number of criminal businesses. Several such criminals involved in the gambling industry have been assassinated in recent years, and the industry also fosters crime at a lower level, such as stealing by gambling addicts and violence from desperate losers.

Regulatory challenge. Regulating the gambling industry is difficult, not least because of the vulnerability of the regulators to corruption when faced with large bribes from powerful criminal figures. However, three countries have made notable progress in regulating the sector:

* Bosnia. A new law in the Federation of BiH simplified the tax rate on earnings to a flat tax of 10%, replacing a complex web of different rates in the 10 cantons.

* Serbia. A new law was introduced in 2004, which increased state control over lotteries, and made other gambling activities conditional on gaining a license from the state. All casinos were closed down until they had won the new licenses, and only one has so far succeeded in doing so.

* Bulgaria. The State Commission on Gambling, established under the Ministry of Finance, has helped to quantify the size of the sector and monitor compliance with regulations.

Outlook

Balkan governments urgently need to find effective solutions to regulate the gambling industry, so as to limit access for organized crime and allow the state to benefit from the industry’s vast profits. However, the sector attracts some powerful criminal figures, while regulation is inherently vulnerable to corruption.

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